At the opening of the Atlantic Council’s Black Sea Energy and Economic Forum in Bucharest on September 30, you couldn’t ask for a better mix of commercial and geopolitical interests when it comes to energy development in Eurasia. But not because the speakers represented a government and the private sector.
In fact, Ambassador Richard Morningstar, U.S. Special Envoy for Eurasian Energy, and Paolo Scaroni, CEO of Eni, presented an interesting juxtaposition: an ambassador defending market principles and a businessman backing a highly geopolitical project. While the U.S. government line on Eurasia’s pipeline duel has long been that Washington supports any energy projects based on market principles, the U.S. and the European Union in practice have put significant diplomatic leverage behind Western-oriented endeavors such as the now completed Baku-Tbilisi-Ceyhan oil pipeline and the planned Nabucco natural gas pipeline. Both connect European markets to Caspian resources, avoiding Russia and Iran.
The U.S. so far has not supported Russian-backed projects such as Nord Stream and South Stream, not only because they are commercially questionable, but because they would increase Europe’s dependence on Russian resources and lock Caspian producers into Russia’s export structure. But, speaking to a gathering of the region’s major energy players, Morningstar seemed to be crossing a line by suggesting that should Russian-backed projects make sense commercially, the U.S. might support them. The Wall Street Journal interpreted this as a significant shift in policy:
A top American diplomat said Wednesday that U.S. President Barack Obama wants closer cooperation with Russia on energy issues in the Caspian and Black Sea regions, highlighting a clear break from the Bush Administration’s diplomacy in these key energy corridors.
“I hope and think we will make more progress with Russia. We would like to see more engagement with Russia” on various energy issues, including the building of new natural gas pipeline routes in this region, U.S. Special Envoy for Eurasian Energy affairs Richard Morningstar told energy executives and diplomats at a conference here.
Morningstar’s comments come just over a week after Obama scrapped plans hatched under the Bush White House for a U.S. missile-defense system that had angered Russia because of its proposed location in Poland and the Czech Republic.
For his part, Scaroni emphasized that Russia’s South Stream project – which would directly connect Russia with EU markets, deliberately avoiding Ukraine – and the Western-backed Nabucco project – which will bring Iraqi, Azerbaijani and possibly Turkmen and Egyptian gas through Turkey to Central Europe – are not competing projects. Eni has entered into a partnership with Russia’s energy monopoly Gazprom to build South Stream.
Given Europe’s growing need for gas, it is possible that both lines would find eager consumers, but this presupposes that both are in fact viable projects. As Nabucco progresses, with a transit agreement signed in July and an upcoming agreement to tie Iraqi reserves to the project, South Stream increasingly looks to be more of a geopolitical gambit to undermine its rival than a serious project.
Following the July agreement on Nabucco, Russian Prime Minster Putin visited Ankara in a bid to rope Turkey into South Stream, but he did not go back to Moscow with any serious commitments. This might be because South Stream’s numbers don’t add up. As Scaroni confirmed on September 30, the project’s capacity is 63 billion cubic meters (bcm) of gas per year through an undersea pipeline that would have to bridge another line already on the Black Sea floor: Blue Stream. The cost of this mammoth endeavor, according to Scaroni and Gazprom, would be more than €25 billion, making it the most expansive single energy project ever conceived. In contrast, Nabucco weighs in at 31 bcm and €7 billion and would run entirely onshore.
Even if the U.S. is open to cooperating with Russia on energy projects in principle, it will most likely not be supporting South Stream any time soon. Morningstar’s remarks should be understood in the context of the Obama administration’s “Russia reset” policy: Washington’s support for projects that strengthen energy and foreign policy independence in the EU and its wider neighborhood does not necessarily preclude American businesses and the U.S. government from talking with and potentially even cooperating with Moscow on energy. That said, when assessing opportunities for such cooperation, let us not close our eyes to the realities of energy geopolitics in Eurasia. Nabucco and South Stream are rival projects, and its looks like the former is pulling ahead.
Alexandros Petersen is Dinu Patriciu Fellow for Transatlantic Energy Security and associate director of the Eurasia Energy Center at the Atlantic Council.